TCS Daily

Cloning the Taiwanese Tiger?

By Meelis Kitsing - July 20, 2004 12:00 AM

When developing countries want to advance their backward economies through technological innovation, they often look for lessons from Western Europe and the United States. Obviously, technology has been a crucial factor behind Western prosperity during the last centuries. Utilization of science, innovation in technologies, and an institutional framework that encourages the growth of knowledge-based economic activities all play crucial roles in the economic progress of these developed countries.

However, if the aim of developing countries in Asia, Latin America and Africa is to catch up with the West, then the gradual growth of the US and Europe, which took centuries to accumulate, may not offer relevant experience. Instead, developing countries can look for clues in the more recent recipes used by countries that were previously poor but have, to a great extent, caught up with the West over the last decades. A conference held at Harvard University in June, under the title "Technological Innovation and Economic Development: Lessons from Taiwan", aimed to offer one exemplar country to analyze what role science, technology and institutions can play in the transformation of a poor developing country to a wealthy one.

Four decades ago, Taiwan was poor, backward, and had an agriculture-based economy. Taiwan's per capita GDP was $1,256 in 1960 (measured in 1985 dollars), which was lower than the per capita GDP of Costa Rica, Panama, El Salvador, Syria, Sri Lanka, Mauritius, Iran, Turkey and many other developing countries. In 1999 Taiwan's per capita GDP was $12,700, while the per capita GDP for Sri Lanka was $820 and Panama, $3,400.

Taiwan is often grouped together with other Asian Tigers, such as Hong Kong, Singapore and South Korea, who experienced similarly rapid growth. This common trait makes it tempting to look for a specific model used by these Asian Tigers. However, there are great differences. As pointed out at the conference by Lewis Branscomb, professor emeritus at Harvard University, the role of small and medium enterprises has been crucial in the Taiwanese economy. South Korea relied on large industrial conglomerates. Taiwan encouraged foreign direct investment. But this was not the case with South Korea, which preferred to rely on domestic capital.

Eduardo Viotti, a lecturer on science and technology policy at the Universidade de Brasilia, argued on the basis of his comparative study that Taiwan has been much more effective in utilizing scientific achievements in technological production than Brazil and Mexico. While Mexico and Brazil have increased their shares in the world's scientific production during the last decades, the transformation of this knowledge to practical use in industries has been very poor. At the same time, Taiwan has excelled in this transformation, and its share in the world's scientific production in 2001 was smaller than its share in technological production.

According to Viotti, this outcome calls into question the standard assumption that a direct connection exists between a country's scientific achievement and its technological innovation. The cases of Brazil and Mexico prove that scientific achievements are not automatically translated into technological innovation. Taiwan's ability to effectively use its scientific knowledge in technological development begs to pinpoint the enabling mechanism. Why has Taiwan succeeded while Brazil, Mexico and many other developing countries have not?

According to Viotti, Taiwan has fostered an active learning process. Brazil and Mexico have been passive learners. Taiwanese research and development policy has been more focused and the institutional framework has encouraged competition; these, in turn contribute to the active learning process. Adding an emphasis on education (particularly training engineers) and sending students for studies abroad seems to be Taiwan's magic formula, one that could benefit developing countries eager to catch up with the rich world. Encourage FDI, create institutional framework that facilitates growth of many small- and medium enterprises, spend on science but maintain a specific focus and educate your workforce.

Nonetheless, the magic formula still does not answer the questions of whether policymakers, especially those in the developing countries, really know where to spend their research and development funds and what type of education will be in demand in the future. Even if in the highly unlikely event that policymakers were to have the answers, would they have incentives to invest for the sake of long-term economic development? In other words, the classic collective action problem is raised. Especially so, if the assumption is that policymakers are more likely to follow short-term self-interests rather than the long-term general interest; then it would seem the magic formula has lost its effect, not to mention that harsh reality has taken away its magic touch.

Taiwan has overcome the collective action problem because of the constant military threat posed by mainland China. However, it is precisely this military threat and the country's cooperation with the U.S. that significantly reduces the universal applicability of the Taiwanese model to other countries. When such conditions are added, developing countries might find cloning the Taiwanese Tiger not only less appealing, but politically impossible as well.

Furthermore, Taiwan's ability to advance its economy by focusing on information and communication technologies may result partially from pure luck. Perhaps Taiwan happened to have the right environment at the right time for technologies that took off in the world market. A research paper by Tzung-wen Chen and Se-hwa Wu of the Graduate Institute of Technology and Innovation Management demonstrated how Taiwan was able to transfer semiconductor technology and build its manufacturing capability, yet -- despite high-level government efforts -- failed to introduce Hepatitis B manufacturing technology from France in the 1980s.

Taiwan certainly offers lessons for achieving a successful tiger economy using technological achievements. However, a healthy den requires individual cubs -- having an exact clone of the Taiwanese Tiger does not seem to make much sense.


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